The Cost of Delayed Reform

The temporary federal high-risk pools won't reach most of the medically uninsured.

Several million Americans without insurance face the challenges of cancer, heart failure, or other serious illnesses. As of 2014, they'll receive coverage through a new and inclusive system of health-insurance exchanges, affordability credits, and other measures, but what happens to them in the interim?

The Affordable Care Act includes a number of measures that go into effect in the short term -- some of them this year, such as a regulation prohibiting insurers from denying coverage of children's pre-existing conditions. That provision, along with the expansion of the Children's Health Insurance Program, should help many families with sick or disabled children who would otherwise be uninsured.

The picture continues to be grim, though, for uninsured adults with serious medical problems. The legislation does provide funds for temporary high-risk pools, but this program, the Pre-Existing Condition Insurance Plan, suffers from major drawbacks.

The most serious of those drawbacks is that the pools can cover only a small minority of people in serious difficulty. Although no one has prepared precise financial forecasts, the available data suggest that high-risk pools require annual subsidies of roughly $6,000 per person. HHS officials project that the $5 billion federal program, which went into effect in July and lasts only until January 2014, will thus cover an ongoing population of approximately 200,000 during those three and a half years. To put that number in perspective, several million uninsured people have been diagnosed with such serious ailments as stroke, diabetes, cancer, or heart failure. (I've estimated this population at 4 million, while others have given higher estimates.) If every one of the 200,000 beneficiaries of the program would have otherwise gone uncovered, the new high-risk pools will reach less than 10 percent of those needing assistance.

The limitations of high-risk pools were already evident from existing state programs. Thirty-five states now operate such pools, covering only about 200,000 people across the country, and the insurance provided to them is both limited and expensive. A mandatory waiting period prevents people who get injured or become ill from receiving coverage right away, and although the insurance typically comes with high deductibles and co-payments, annual premiums cost about $5,800 for a population with household incomes averaging $41,000. When Republicans in Congress proposed high-risk pools in 2009 as an alternative to comprehensive reform, Democrats properly lambasted the proposal as grossly inadequate. High-risk pools, as one Obama administration analysis put it, "do not work."

That blanket condemnation came before the administration itself endorsed a high-risk-pool program as a short-term, stopgap measure. The new federal program does provide better coverage than the states have. Premiums and cost-sharing will be typically lower than in state high-risk pools. But even the federal program will require applicants to be uninsured for 6 months before becoming eligible. This waiting period may be necessary to target constrained resources and deter individual risk-taking. Yet imagine that you are uninsured and that you break your back in a car wreck. You'll have to undergo six months of treatment before your bills are covered.

Under the Affordable Care Act, states may use federal funds to establish or to expand their own high-risk pool, though if they do so, they must limit premiums, deductibles, and co-payments. Alternatively, a state government can let federal authorities operate a temporary high-risk-pool program in that state.

While 30 states and the District of Columbia have chosen to take on operating responsibility, the remaining states have decided to cede control to the federal government. The map above, compiled by the National Commission of State Legislatures, bears a similarity to the 2008 McCain-Obama electoral map. Nearly every state that has declined to participate has a Republican governor, even though high-risk pools have a long Republican pedigree.

The governors who have opted to run the program may be taking a burden on their shoulders. If federal funds run out before 2014, those states may face pressure to add their own revenue to sustain the program. A state that runs a federally funded program must also maintain its earlier level of funding for its own previously existing high-risk pool, if it had one. In contrast, as health-care consultant Mark Merlis has noted, states that leave the program to federal control do not face any similar requirement and could try to reduce expenditures for a high-risk pool of their own by steering future applicants into the federal pool. Texas is already encouraging applicants to look into the federal program. And if states succeed in diverting people whom they would have covered anyway, the net increase in coverage will be smaller than actual plan enrollment.

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What Should Congress Do?

The best way to address these problems would be to accelerate the timetable for health reform -- for example by subsidizing states to start up the exchanges before 2014. Assuming high-risk pools are necessary as a stopgap measure, Congress could cover more people by allocating more money, though the administration gives no indication that it is seeking additional funds. "We are going to do the best we can to cover as many people as we possibly can with the money that Congress has authorized and appropriated," Jay Angoff, director of the new Office of Consumer Information and Insurance Oversight, told the Prospect. Under the law, the secretary of health and human services can narrow the eligibility criteria for the program if it begins running higher costs than projected, though that would leave even more people without protection.

Another way to address the problem would be to expand other programs that reach some of the neediest people who might seek coverage through the high-risk pools. For example, the federal government could eliminate or shorten the Medicare waiting period for individuals determined to be eligible for public disability programs. Alternatively, Congress could phase in the scheduled expansion of Medicaid more quickly for people with incomes up to 133 percent of the poverty line if they meet the health criteria for high-risk pools. Of course, all these options would cost more money.

Now that the Affordable Care Act has passed, friendly criticism may seem like Monday-morning quarterbacking. Still, a look at the game tapes can be instructive. Low transitional funding was, in my view, a largely unforced error in the legislation. Last year's partisan battle would not have been much different if Congress had provided two or three times the funds for high-risk pools than it did.

That money is sorely needed. High-risk pools are among the first measures that Americans will see in the long process of health reform, and the inadequacy of the pools may bias perceptions against the larger changes ahead. Aside from the politics, Americans who are sick and uninsured also have a right to help. For many people, 2014 will be too long to wait.